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03-07-2019, Vardhman Acrylics, Section 14A, 8D(2)(iii), Tribunal Chandigarh

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3 months 3 days ago #10006 by amit
Section - 14A, 8D(2)(iii), 36(l)(iii)
Order Date - 03-07-2019
Favouring - Partly
Court - Tribunal Chandigarh
Appellant - DCIT
Respondent - Vardhman Acrylics Limited
Justice - SANJAY GARG JM & ANNAPURNA GUPTA AM
Citation - 719Taxpundit100
Appeal No. - ITA No. 88/CHD/ 2018
Asstt. Year - 2013-14

Order

PER : Sanjay Garg

The present are the cross appeals, one by the Revenue and other by the assessee, arising out of the order of the Commissioner of Income Tax-1, Ludhiana [hereinafter referred to as’ CIT(A)’]

2. The Revenue in this appeal has taken the following grounds of appeal :-

1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in directing the AO to recalculate the addition made on account of disallowance u/s. 14A of the Income Tax Act, 1961 by applying the amended provisions of Rule 8D(2)(ii) (@ 1% of the annual average of monthly average of the opening and closing balances of the value of investments, whereas the same amendment was introduced w.e.f. 02.06.2016 and does not have
retrospective effect?

2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition on account of disallowance u/s. 36(l)(iii) of the Income Tax Act?

3. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored.

4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. whereas, the assessee in its appeal has taken the following grounds of appeal :-

1. That the order passed by the Ld. CIT(A) is contrary to law and facts of the case.

2. That the Ld. CIT(A) has erred in law and on facts in upholding the applicability of Rule 8D.

3. That the Ld. CIT(A) erred in law and on facts in making disallowance made by the Assessing Officer under Rule 8D(2)(ii).

4. That the Ld. CIT(A) erred in law and on fact in enhancing the disallowance made by the Assessing Officer under Rule 8D(2)(iii) by applying amended Rule 8D.

5. That the appellant craves leave to add/ alter / amend any ground of appeal on or before the due date of hearing of appeal.

3. A perusal of the above grounds of appeal taken by the assessee as well as by the Revenue reveals that the first issue raised in both the appeals is relating to the addition made by the Assessing Officer on account of disallowance of expenditure u/s 14A read with Rule 8D of the I.T. Rules in respect of expenditure incurred by the assessee on investments made for earning of tax exempt income. The second issue is relating to the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act on account of interest expenditure incurred by the assessee on the aforesaid investments which were not relating to thebusiness of the assessee.

4. The Assessing Officer noticed that the assessee during the year had made huge investments and had also earned substantial tax exempt income. However, the assessee had suo motu disallowed a sum of Rs. 1 lac on account of expenditure relatable to earning of tax exempt income u/s 14A of the Act. On being asked to explain in this respect, the assessee pleaded that assessee was having sufficient own / interest free funds to meet the investment, hence, neither any disallowance u/s 14A was warranted nor u/s 36(1)(iii) of the Income Tax Act, 1961.

5. The Ld. Assessing Officer, however, did not get satisfied with the above submissions of the assessee and computed the disallowance u/s 14A of the Act as per the formula prescribed under Rule 8D of the Income Tax Rules, 1962 at Rs. 66,51,923. The Assessing Officer further computed the disallowance u/s 36(1)(iii) of the Act @ 12% of such investments at Rs. 1115 lacs. He, however, observed that since the assessee had claimed total interest expenditure of Rs. 26,88,000/- only, against which a disallowance of interest expenditure of Rs. 9,61,553/- under rule 8D(2)(ii) of the I.T. Rules had already been made, he therefore, restricted the disallowance u/s 36(1)(iii) of the Act at Rs. 17,26,447/- and added the same into the income of the assessee.

6. Being aggrieved by the above order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A) and pleaded that the assessee was possessed of sufficient own funds to meet the investment in question, hence, no disallowance of interest expenditure was attracted. It was also pleaded that assessee had already suo motu disallowed as sum of Rs. 1 lacs on account of administrative expenses under section 14A read with Rule 8D(2)(iii) of the I.T. Rules, 1962. The Ld. CIT(A) considering the submissions of the assessee agreed with the

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